China Pours $4.7 Trillion Yuan into Transportation Infrastructure

The Chinese government has announced that it will pour $4.7 trillion yuan (US$723 billion) into transportation infrastructure projects over the next three years. The Ministry of Transportation and National Reform and Development Commission, which released the joint statement, said that China’s transportation infrastructure has not kept pace with the rapid economic development the country has experienced.

We think so too. In 2013, for example, China was home to only 5.6% of the world’s roads despite having 20% of the world’s population. Enormous infrastructure investment in recent years have been an effort to catch up with growth.

That’s one of the reasons China is investing 6.9% of its 2015 GDP into these new infrastructure plans, though critics say that the amount of additional debt China will likely take on to finance these initiatives could bring systemic risk to China’s economy.

The number sounds gigantic, but it’s spread over three years. Since the reform and opening in 1978, China has already been focused on aggressively expanding its transportation infrastructure. From 1978 to 2008, China increased more than five-fold the total mileage of transport routes (road, rail, waterways, civil aviation, pipeline) in the country. Given that China invested nearly $4 trillion yuan in similar transportation infrastructure projects in 2015, $4.7 trillion yuan over three years is actually a significant reduction.

We’re excited about these developments, as it will eventually lower the cost and reduce the time needed to transport goods within China. It’s likely that many of the infrastructure projects will go towards developing inland provinces, which have seen unequal economic growth in China compared to coastal regions. As manufacturers move westward and inland because of rising wages on the coast, it’s important for China to develop the transportation linkages to support the manufacturing sector. Transportation costs are a de facto tariff on goods. We expect that these investments in China’s transportation infrastructure will help lower the barriers to trade.